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Cosmos SDK Club: Osmosis (Part 2)
How to use Osmosis
This episode is a how to guide, getting started using Osmosis for trading, staking,
providing liquidity, and taking part in liquidity bootstrapping pools.
First and foremost, you will need to set yourself up with a Keplr or Cosmostation wallet. This way you can keep track of all your tokens within the Cosmos ecosystem in one place and have somewhere to send tokens that you have purchased from centralized exchanges (CEX). Once you have your wallet you will need to send your Cosmos SDK token of choice from the CEX to your wallet. Once received, you can then go to the Osmosis decentralized exchange (DEX) and deposit your tokens.
There is a plethora of Cosmos SDK tokens supported by CEX’s (Binance, Coinbase, Kucoin, Coinspot etc) that you can buy with your fiat currency and then send to your wallet, including TerraUSD (UST), Terra (LUNA), Cosmos (ATOM), Secret Network (SCRT), Crypto.com (CRO), IRIS and more. Once purchased, simply send the tokens to your new wallet by going to the send token function in your CEX wallet and inputting your wallet address. Having received your tokens into your Keplr or Cosmostation wallet you can then proceed to the Osmosis application and under the asset tab you can deposit your tokens onto the Osmosis DEX.
Now that you have your tokens in the Osmosis app you can use the trade function to trade your tokens into any other Cosmos SDK token supported by Osmosis. At the time of writing there are 30 tokens available on Osmosis and more are being added almost every week.
Aside from trading you can also provide liquidity to the liquidity pools (LP). Pools are balanced at a 50:50 ratio of two tokens and are instrumental in providing the liquidity for traders buying and selling tokens on Osmosis. The rewards for providing said liquidity are quite generous on the incentivized pools however, I will leave a link below to a guide to providing liquidity. Make sure you read it carefully and understand the risks of providing liquidity before entering into any of the LP’s. Once you understand the pros and cons of providing liquidity, these pools can be quite lucrative.
Liquidity Bootstrapping Pools
Another option you have with Osmosis is to buy new tokens through the liquidity bootstrapping pool (LBP) function. New tokens are set at a 10:90 ratio and over a period of 3 days move toward a 50:50 ratio. Once this ratio has been reached a price is set and liquidity pools open, and trading begins. The function of the LBP is to allow the market to organically find the price for the new token as the ratio gets closer to the 50:50 mark and buyers choose the price they feel the token is worth. Depending on the volume of buyers the price can go up or it can go down during the LBP, so it is a very interesting way of finding a tokens market price that is not entirely predictable.
There is one more function of Osmosis which has yet to arrive but is in the works. Something called superfluid staking. With superfluid staking you can use Osmosis supported tokens that you have staked and simultaneously provide liquidity to the LP’s. Sounds like having your cake and eating it too? Well it is exactly that. When superfluid staking launches, you will be able to receive the inflation rewards that come with staking proof of stake tokens and also receive the rewards that come with providing liquidity. Stacking crypto is about to become even more exciting.
Please make sure that if you are planning to put tokens in liquidity pools that you understand about impermanent loss and consider your risk/reward appetite before providing liquidity. Osmosis liquidity mining 101 link is below. Nothing contained in this article should be considered as financial advice. Simply a guide as to how to get started using Osmosis. Happy Trading!!
I’ll be deep diving into more chains and aspects of the Cosmos ecosystem over the coming weeks and months so subscribe if you haven’t already to keep up to date with everything Cosmos
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